Research summary

Getting inside the Fed’s head

August 25, 2022

A dotted line shows the expected trajectory of the federal funds rate, which rises to around 3.8% by the end of 2023 and then stabilizes at around 2.5% from the end of 2025. A solid line shows how the Fed might modify the expected trajectory in the federal funds rate, which rises to around 3.4% by the end of 2022 and subsequently declines to stabilize around 2% by the end of 2026.
A dotted line shows the expected trajectory of headline PCE, which declines from 6.3% in June 2022 to around 1.4% at the end of 2024 before moving back to stabilize around 1.5% by the end of 2026. A solid line shows how reaction by the Fed might result in headline PCE declining somewhat less, from 6.3% in June 2022 to around 1.1% at the end of 2024 before moving back up toward 2% by the end of 2028.
A dotted line shows the expected trajectory of the output gap, which declines to around –1.5% in 2024 and subsequently improving. A solid line shows how reaction by the Fed might result in the output gap declining more modestly to around –1.2% in 2024 and improving thereafter.
A dotted line shows the expected trajectory of the federal funds rate, which rises to around 3.8% by the end of 2023 and then falling to stabilize at around 2.5%. A solid line shows how the Fed might modify the expected trajectory in the federal funds rate, which rises to around 5.40% by the end of 2023 and subsequently declines to stabilize around 2.5%.
A dotted line shows the expected trajectory of headline PCE, which declines from 6.3% in June 2022 to stabilize at around 3.5% by the end of 2024. A solid line shows how reaction by the Fed might result in headline PCE declining more sharply, from 6.3% in June 2022 to stabilize at around 2% from the end of 2026.
A dotted line shows the expected trajectory of the output gap, which declines to around 0.4% by the end of 2024 and improves thereafter. A solid line shows how reaction by the Fed might result in the output gap declining more modestly to around –1.2% in 2024 and improving thereafter.
A dotted line shows the expected trajectory of the federal funds rate, which rises to around 3.8% by the end of 2023 and then stabilizes at around 2.5% from the end of 2025. A solid line shows how the Fed might modify the expected trajectory in the federal funds rate, which rises to around 3.4% by the end of 2022 and then declines to stabilize at around 2.5% from the end of 2025.
A dotted line shows the expected trajectory of headline PCE, which declines from 6.3% in June 2022 to fall below target and then stabilize at around 2% from the end of 2027. A solid line shows how reaction by the Fed might result in headline PCE declining more slowly, from 6.3% in June 2022 to stabilize at around 2% from the end of 2024.
A dotted line shows the expected trajectory of the output gap, which declines to around –0.9% by the end of 2024 and improves thereafter. A solid line shows how reaction by the Fed might result in the output gap declining more modestly to around –0.2% in 2024 and improving thereafter.

Contributors

Asawari Sathe
Roxane Spitznagel
Vanguard Information and Insights

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